Derivative Instruments and Hedging Activities

9 Months Ended

Sep. 30, 2011

Derivative Instruments and Hedging Activities [Abstract]

Derivative Instruments and Hedging Activities

Note 4. Derivative Instruments

We do not apply hedge accounting treatment to our oil and natural gas derivative contracts, and therefore the changes in the fair values of these instruments are recognized in income in the period of change. These fair value changes, along with the cash settlements of expired contracts are shown under “Derivatives expense (income)” in our Unaudited Condensed Consolidated Statements of Operations.

From time to time, we enter into various oil and natural gas derivative contracts to provide an economic hedge of our exposure to commodity price risk associated with anticipated future oil and natural gas production. We do not hold or issue derivative financial instruments for trading purposes. These contracts have consisted of price floors, collars and fixed price swaps. The production that we hedge has varied from year to year depending on our levels of debt and financial strength and expectation of future commodity prices. We currently employ a strategy to hedge a portion of our forecasted production for a period generally ranging fromapproximately 12 to 18 months in advance, as we believe it is important to protect our future cash flow to provide a level of assurance for our capital spending in those future periods in light of current worldwide economic uncertainties and commodity price volatility.

We manage and control market and counterparty credit risk through established internal control procedures that are reviewed on an ongoing basis. We attempt to minimize credit risk exposure to counterparties through formal credit policies, monitoring procedures, and diversification. All of our commodity derivative contracts are with parties that are lenders under our BankCredit Agreement.

The following is a summary of “Derivativesexpense (income)” included in the accompanying Unaudited Condensed Consolidated Statements of Operations for the periods indicated:

			Three Months Ended				Nine Months Ended
			September 30,				September 30,
In thousands			2011		2010		2011		2010
Oil
	Payment on settlements of derivative contracts		$	1,857	$	3,590	$	23,857	$	80,969
	Fair value adjustments to derivative contracts - expense (income)			(205,355)		62,450		(225,485)		(144,471)
		Total derivative expense (income) - oil		(203,498)		66,040		(201,628)		(63,502)
Natural Gas
	Receipt on settlements of derivative contracts			(6,427)		(13,626)		(19,073)		(34,005)
	Fair value adjustments to derivative contracts - expense (income)			(229)		(19,933)		8,393		(39,041)
		Total derivative expense (income) - natural gas		(6,656)		(33,559)		(10,680)		(73,046)
Ineffectiveness on interest rate swaps				-		(627)		-		(1,497)
		Derivative expense (income)	$	(210,154)	$	31,854	$	(212,308)	$	(138,045)

Commodity Derivative Contracts Not Classified as Hedging Instruments

The following tables presentoutstanding commodity derivative contracts with respect to future production as of September 30, 2011

				NYMEX Contract Prices Per Bbl
		Type of		Weighted Average Price
Year	Months	Contract	Bbls/d	Swap		Floor		Ceiling
Oil Contracts
2011	Oct - Dec	Swap	625	$	79.18	$	-	$	-
		Collar	45,500		-		70.33		101.74
		Put	6,625		-		69.53		-
	Total Oct - Dec 2011		52,750
2012	Jan - Mar	Swap	625		81.04		-		-
		Collar	52,000		-		70.00		106.86
		Put	625		-		65.00		-
	Total Jan - Mar 2012		53,250
	Apr-June	Swap	625		81.04		-		-
		Collar	53,000		-		70.00		119.44
		Put	625		-		65.00		-
	Total Apr - June 2012		54,250
	July-Sept	Swap	625		81.04		-		-
		Collar	53,000		-		80.00		128.57
		Put	625		-		65.00		-
	Total July - Sept 2012		54,250
	Oct - Dec	Swap	625		81.04		-		-
		Collar	53,000		-		80.00		128.57
		Put	625		-		65.00		-
	Total Oct - Dec 2012		54,250
2013	Jan - Mar	Collar	16,000		-		70.00		112.66
	Total Jan - Mar 2013		16,000

			Type of		Weighted Average Swap
Year		Months	Contract	MMBtu/d	Price per MMBtu
Natural Gas Contracts
	2011	Oct - Dec	Swap	33,500	$	6.27
		Total Oct - Dec 2011		33,500
	2012	Jan - Dec	Swap	20,000		6.53
		Total Jan - Dec 2012		20,000

Additional Disclosures about Derivative Instruments

At September 30,2011 and December 31, 2010, we had derivative financial instruments recorded in our Unaudited Condensed Consolidated Balance Sheets as follows:

					Estimated Fair Value
					Asset (Liability)
In thousands					September 30,		December 31,
Type of Contract				Balance Sheet Location	2011		2010
Derivatives not designated as hedging instruments:
	Derivative asset
		Oil contracts		Derivative assets - current	$	96,177	$	3,050
		Natural gas contracts		Derivative assets - current		20,584		21,192
		Oil contracts		Derivative assets - long-term		52,627		1,301
		Natural gas contracts		Derivative assets - long-term		3,833		11,618
	Derivative liability
		Oil contracts		Derivative liabilities - current		(60)		(55,256)
		Deferred premiums		Derivative liabilities - current		(9,193)		(22,928)
		Oil contracts		Derivative liabilities - long-term		(70)		(25,906)
		Deferred premiums		Derivative liabilities - long-term		(662)		(3,781)
			Total derivatives not designated as hedging instruments		$	163,236	$	(70,710)